Microsoft to Offer Xbox 360 with Kinect for $99?!

Well, don’t get too excited just yet – if you take Microsoft up on that offer, you’ll actually end up spending more than if you went out and bought an Xbox 360 outright today.

The Verge is reporting that, possibly as early as next week, Microsoft will begin to sell 4 GB Xbox 360 bundles including Kinect for $99. What’s the catch? That’s a subsidized price, hinging on a two-year contract with Xbox Live at $15 per month. Sound familiar? Looks like shopping for a video game console is about to become like shopping for a mobile phone, including the fun process of locking yourself into one device and one service for two years. Raise your hand if you’re excited by that prospect.

The plan is part of Microsoft’s goal of branding the Xbox as a home entertainment center, rather than strictly as a video game console. There’s a good reason Microsoft has that goal – right now, the Xbox 360′s slate of Internet-connected entertainment apps are more popular than online gaming over Xbox Live.

Over the course of two years, the total cost to the consumer would come out to $459, more expensive than if you bought an Xbox 360 bundle with Kinect and two years of Xbox Live Gold, which comes out to $418. It’s possible that additional services could become available to monthly subscribers, but it’s not clear yet what those might be, though they could include streaming content from cable or live sports service providers. And, yes, there will be an early termination fee.

The most important implications of this move, however, do not lie with the Xbox 360 itself. New consoles from Microsoft and Sony are almost certainly on their way, and could hit markets as soon as late 2013. It’s been well chronicled that Sony sells each PlayStation 3 unit at a loss, relying on software and accessory sales to make the machine profitable. Even with software and accessory sales, it’s hard for Sony and Microsoft to sell their consoles at affordable prices, given how expensive it is to make each unit. Monthly subscriptions have the potential to pull in far more money, allowing both companies to offer their consoles for lower entry prices, while actually making more money per unit sold in the long run than they do currently.

If Sony and Microsoft can sell self-subsidized consoles, they stand to sell far more units, too, especially if those consoles are presented as all-in-one media centers. It’s a more stable business model that could keep both the PlayStation and Xbox brands afloat and profitable for long into the future. In fact, it’s probably better to view this Xbox 360 bundle as a trial run of sorts, in order to gauge how best to implement something like this on a larger scale when the tentatively-named Xbox 720 is released. It would be surprising if Sony did not follow suit, either with the PS3 or their next console, at some point.

As for Nintendo, the Mario factory likely doesn’t have the resources to compete on this kind of scale, especially given the company’s woeful history with implementing online connectivity. It’s no coincidence that Nintendo’s financials have plummeted as Microsoft in particular, and Sony to a less successful extent, have bolstered their online services with loads of entertainment apps and features that rely on Internet connectivity. Will the Wii U have an online service that can match Xbox Live or the PlayStation Network? Given how far behind Nintendo is in that department, it’s hard to be optimistic.

As for Microsoft, the decision to sell subsidized consoles along with two-year contracts is a win-win all around, giving them more money in the long run, expanding the scope of the Xbox brand, and allowing them to market their product to a wider audience that has until now shied away from pricey consoles. Plus, they get to grow what will eventually be the Windows 8 “ecosystem.” Big win for Microsoft. So, what’s the upside for consumers in all of this? I guess that really doesn’t matter so much anymore, does it?

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